Volkswagen finds itself in a snootful of trouble early this week. Last Friday, the EPA revealed that the company will be instructed to recall nearly 500,000 vehicles and face a potential $18 billion in fines. And VW shares plummeted by more than 20 percent—eviscerating $16.9 billion of market value—at European markets' close Monday after the company instructed US dealers to stop selling several 2015 diesel models.

All this hot water stems from US regulators' discovery that VW engine software was engineered to explicitly circumvent US federal and state emissions laws. The clear purpose of the circumvention was to temporarily lower emissions when it detected that the vehicle was being emissions inspected. When disconnected from test equipment, the emissions circuit of the engine’s controls was at least partially bypassed, enabling the car to perform better on the road. The situation is so problematic that German regulators are now probing Volkswagen for similar emissions fraud in its home market. And other government regulators like the Department of Health and Human Services may weigh in too, since the nitrogen oxide emissions elements involved in the findings are classified by many governments as health risks.

Further Reading

Perhaps most dire of all for VW, the US Department of Justice is now investigating Volkswagen's conduct in a criminal probe, according to Bloomberg. That's at least four US government agencies now potentially on the carmaker's tail.

As of press time Monday afternoon, the EPA told Ars, "the EPA will require VW to remedy the noncompliance. Determinations regarding potential penalties and other remedies will be assessed as part of the investigation EPA has opened in conjunction with the US Department of Justice." Any EPA dictum is separate from the California Air Resources Board (CARB), which can levy its own fines.

But it is not just emissions compliance that's under the microscope here. If—and that’s a big if—VW is allowed to repair the affected cars in the US market through a recall, it is virtually assured that the label values for those vehicles' fuel economy ratings will be void. VW will have therefore effectively falsified the EPA mileage ratings of 482,000 cars. And that may be more than just an EPA issue. It may involve the Department of Commerce.

"I personally am deeply sorry that we have broken the trust of our customers," VW CEO Martin Winterkorn stated Sunday. "Volkswagen has ordered an external investigation of this matter."

On Monday evening, at a large public event to debut the new Passat (scheduled long before this diesel issue surfaced), VW of America's CEO, Michael Horn, took his turn to address the issue. "Our company was dishonest, with EPA, the California Air Resources Board, and with [the public]," he stated. "In my German words, we totally screwed up. We must fix those cars [and] prevent this from ever happening again and make things right. With the government, the public, customers, employees, and our dealers. This [dishonesty] is completely inconsistent with our core values, which include… responsibility. It goes totally against what we believe is right."

Winterkorn headed the VW brand from 2007 to 2015, a period that includes the model years of some of the company's VW and Audi models that were found flouting US emissions laws. For Volkswagen, this is Chernobyl in both their front and back yards.

VW saw data in December 2014

How did this all happen? To start, there had been a pattern of non-compliance in emissions observed by a joint research commission in Europe. A list of VW products dominated that list. This research commission then reached out to a non-profit group, the International Council for Clean Transportation (ICCT), to conduct investigative testing. The ICCT next funded West Virginia University (WVU) to do various tests.

Why WVU? It had experience in this sort of testing, but mainly WVU's previous work focused on commercial trucks. Sure enough, the institution had found data that showed commercial trucks in the US were out of compliance with emissions regulations in 1998, which led to a $1 billion fine levied against the trucking industry.

"When we started the study, CARB wanted to partner up and do some controlled vehicle certification testing before any on-road testing," said Arvind Thiruvengadam, a WVU research assistant professor in the Mechanical Aerospace Department. "Two diesel Volkswagen vehicles were rented—one from an owner—and both were taken to CARB’s lab, where the vehicles passed each test. The on-road testing was then done by WVU and we found a propensity for higher emissions to the results CARB found at the lab. So CARB was able to see the emissions first hand. They participated in the data collection."

Ars spoke with WVU's Thiruvengadam and Daniel Carder, the director of the Center for Alternative Fuels and Engine Emissions (CAFEE). Both researchers were deeply involved in this emission project. As the data was published on ICCT’s website, they said a conversation between CARB, the EPA, and VW ensued as of December 2014.

"VW acknowledged the numbers found," says Thiruvengadam. "WVU also presented the findings at multiple conferences at the time, some of which were attended by folks from VW." Diesel vehicles tested included a VW Jetta, a VW Passat, and a BMW X5. The BMW was found to be within compliance but both VWs were not. Note that the Jetta used a lean NOx (nitrogen oxide) trap, which the Passat and the BMW also used, but the latter two also employed exhaust system after-treatment or urea injection, sometimes known by the marketing name "AdBlue."

The on-road tests included one long hill climb (Los Angeles to Mount Baldy and back); one interstate trip (Los Angeles to San Diego and back), and one urban cycle commonly used by many manufacturers and test facilities for vehicle certification called "FTP75" or "LA4," which is a route around Los Angeles. Low sulfur pump diesel fuel was used in every case. A fourth route included another interstate test from Los Angeles to Seattle and back, though this was only performed with the Passat. Each Volkswagen produced non-compliant results from each route.

Further Reading

Right after these tests, CARB informed VW in July that its vehicles still showed excessive nitrogen oxide emissions. Volkswagen denied fault, instead laying blame on "various technical issues and unexpected in-use conditions," according to the EPA. The EPA then threatened not to certify for sale any 2016 VW cars. So in a September 3 meeting, VW admitted that it had used a second calibration in the diesels intended to run only during certification testing. VW stated that these vehicles were manufactured with a "defeat device" to bypass elements of the vehicles' emission control system. This calibration or "device" was never specified in any certification documents submitted to the EPA and CARB, and it was never covered by any federal Certificate of Conformity (COC) or CARB Executive Order Number (EO). Put simply, it would be in violation of federal and state law.

If Volkswagen were a Japanese company, grown men would figuratively fall on their own swords in the public square when it was discovered that they engineered a way to cheat a country's laws. If Volkswagen cheated not on emissions compliance but on safety regulations (say, fitting airbags with dummy wiring), things would be quite a bit worse—but not by much.

Willful circumvention of federal and state law is not exactly punishable by death, but it may well mean just that to a brand that relies on the trust of existing customers. This scheme undermines the company's attempts to build the trust of potential customers and—perhaps most cynically—it blows up a central tenet of VW's product across two brands: "clean diesel." VW and Audi have wed themselves to the "clean diesel" mantra for years now, using "clean diesel" technology both in the marketplace and on the racetrack. Now pinched by the US government for flouting emissions regulations with a computer-coded bypass for non-compliance, Volkswagen faces an enormous recall, a stop-sale order, and a potential $18 billion dollar fine.

So where does this end? Only one thing is certain. The full scope of these probes, fines, and any resulting legal actions are far from over. Winterkorn and perhaps some other key figures with VW will assuredly be invited to depart.

But will this kill VW as a brand? No, the German federal government, the German State of Lower Saxony, and the EU would never allow that.

Among the ironies—and they are rife—VW has been struggling with lagging sales in the US for years, and those lofty goals have rarely been met. VW formerly owned the US import market from post WWII clear through until 1975, when Toyota finally overtook the import sales crown. It's ironic also because the VW Group, including Audi, puts so many visible eggs in the diesel basket, promoting the technology as fuel-saving and clean. And in perhaps the darkest bit of irony, VW was hoping to get past a recent damaging leadership battle wherein Winterkorn prevailed over chairman Ferdinand Piech for the top post at VW. In fact, the VW Board was set to meet this past Friday to discuss new management and revising the company’s structure.

It will certainly do that now.

Jim Resnick (@JimResnick1) is an automotive journalist whose work has appeared at Ars and the BBC.